'By virtue of exchange, one man's prosperity is beneficial to all others.' – Frédéric Bastiat

The Phobia of Foreign Investment

It has always amazed me how the progressive left has always been the loudest supporters of protectionism despite all the so-called world citizen rhetoric. Perhaps it is just me, but intuitively, I do not see any problem with the fact that two Alberta based companies drill for oil in Newfoundland. Nobody harps about an Alberta takeover and exploitation of Newfoundland’s natural resources, or that profits are being exported from Newfoundland to Alberta. If borders don’t matter, and humans are humans whether they originate from Alberta or China, and what is considered ‘foreign’ is completely arbitrary, at what point does investment become exploitation? Why doesn’t Newfoundland ‘provincialize’ the foreign Albertan investors? Why stop protectionism at the federal level, why not at the provincial level, local level, or even down to neighborhoods and districts?

It seems to me that much of the phobia of foreign ownership is the notion that foreign companies would exist in complete isolation from Canadian society while Canadian companies would not. The first thing to recognize is that foreigners must purchase the resource from at least somebody and that somebody obviously sees a benefit to getting rid of that asset. Second thing is that they must hire workers and pay them competitive wages. Even if they import every single one of their workers, do they import every single input needed to maintain the operation of their industry and do their workers not spend any money on Canadian goods or services? When a foreign industry comes, it integrates itself in Canadian society and the entire economy benefits.

Much of the drive to block out foreign investment comes from the fetish for nationalization. The most popular candidate for nationalization has been the oil industry. Nationalization implies preventing ownership of a resource from the most efficient hands. It implies that business decisions are made by bureaucrats who pay no price for bad choices and they invest on behalf of the taxpayer regardless of performance. It implies that the consumer is no longer king. Whether we like it or not, gasoline truly does fuel our economy and make our daily lives possible. The question I ponder is, will consumers be better off?

The Canadian government can afford to nationalize the oil industry, but the taxpayer cannot. For an industry which makes up of 12% of GDP and supports a half million jobs, it is easy to take profits for granted. For one thing, profits from massive projects such as establishing a new rig cost tremendous amounts of start-up capital. A recent report by the Conference Board of Canada concluded it would cost about $7 billion to build a single new refinery. It is no wonder that there are only 18 refineries in Canada with the last refinery built in 1984. A single refinery may take 10, 20, or even 30 years to begin to pay for itself. Democracy is biased towards short term thinking. What is the incentive for a government to pay such a huge cost when it will not even be in power when the real returns begin? Furthermore, the net profit margins of oil are price sensitive. Currently, the net profit margins are comfortable but in 2009 it was just 6.14%. How will governments respond when their incentive is to spend now to get votes, and worry about long term effects later? What Canadians need is a more competitive oil industry.